If only the left had listened to the Tea Partyers

No matter how much liberals may poke fun at them, Tea Party partisans can claim victory in fundamentally altering the country's dialogue.

But like many liberals, E.J. is puzzled that there could be some connection between debt reduction and economic growth. ("But give the Tea Party guys credit: They have seized the political and media agenda and made budget cutting as fashionable as Justin Bieber was five minutes ago.")

Actually, lots of economists, some countries, even, understand the connection between austerity and economic growth. Let's take Germany, which refused to follow the admonitions of the Obama administration Keynesians and wound up with the best growth rate in Europe and a declining unemployment rate. Last fall Chris Caldwell wrote in the Weekly Standard:

German policymakers do think the United States is misguided as a matter of economic reasoning. "We think they're wrong," says one top official. "We think you don't get the multiplier they say." The multiplier is the measure of how much economic activity results from emergency government spending. Discussions of the multiplier were at the center of the debates over the Obama stimulus plan. Christina Romer and the president's other economic advisers argued that the multiplier would be around 1.6--the government would create $1.60 worth of economic activity for every dollar it spent. At those rates, who can afford not to stimulate? "Our research says the multiplier is more like .60," says the German official. If he is correct, then a stimulus plan can actually deaden an economy rather than stimulate it. If he is correct, you might have been as well off to have taken the stimulus money and thrown it away.

What he calls "our research" does not mean studies commissioned by the German government. It means academic papers that are either skeptical about stimulus in general or question the long-reigning orthodoxy that stimulus plans based on government spending outperform stimulus plans based on tax cuts. The consensus on these matters is shifting in the academy, too. The Harvard economist Alberto Alesina and his colleague Silvia Ardagna published an influential paper last fall in which they surveyed all the major fiscal adjustments in OECD countries between 1970 and 2007 and showed that tax cuts are more likely to increase growth than spending hikes. One of their most controversial findings--which comes from the work of two other Italian economists--is that cutting deficits can be expansionary, particularly if it is done through "large, decisive" government spending cuts, as it was in Ireland and Denmark in the 1980s. More generally, Alesina has argued that "monomaniacal" Keynesians have focused unduly on aggregate demand.

Who else believes that debt impairs economic growth and job expansion? The president's debt commission. In its report the commission cautioned:

Over the long run, as the baby boomers retire and health care costs continue to grow, the situation will become far worse. By 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity - from national defense and homeland security to transportation and energy - will have to be paid for with borrowed money. Debt held by the public will outstrip the entire American economy, growing to as much as 185 percent of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020. These mandatory payments - which buy absolutely no goods or services - will squeeze out funding for all other priorities.

Federal debt this high is unsustainable. It will drive up interest rates for all borrowers - businesses and individuals - and curtail economic growth by crowding out private investment. By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each American's share of the nation's economy, by as much as 15 percent by 2035. . . .

If we do not act soon to reassure the markets, the risk of a crisis will increase, and the options available to avert or remedy the crisis will both narrow and become more stringent. If we wait ten years, CBO projects our economy could shrink by as much as 2 percent, and spending cuts and tax increases needed to plug the hole could nearly double what is needed today. Continued inaction is not a viable option, and not an acceptable course for a responsible government.

After all, if lots of government spending and huge debt were the keys to economic growth and job production, the U.S. economy would be roaring and Obama's prediction that the stimulus plan would keep unemployment no higher than 8 percent would have proven correct. Instead, liberals are left sputtering that Obama's failure was in not spending enough. (As Megan McArdle points out, "When people like Paul Krugman say that almost $900 billion in stimulus didn't work because it wasn't big enough, you have to wonder if an adequate Keynesian stimulus is even possible. Could any government anywhere borrow 15% of GDP or more to spend on temporary measures with the blessing of their citizens?")

The Tea Partyers grasped all of this long before most political elites. Perhaps those elites, including the Obama economic gurus and administration spinners, should have listened more and ridiculed less.

It is highly ironic that conservatives like Rubin, David Brooks, Chris Caldwell, etc. use Germany as their example of economic success. The tax burden of the U.S. is somewhere around 25% of GDP. The tax burden of Germany is 40% of GDP. Conservatives typically say that the higher the tax burden the worse off a country will be competitively. Then why is Germany successful with its huge trade surplus, and at the same time a cradle-to-grave welfare state including paid maternity and paternity leave, 6-week paid vacations for almost everyone, government subsidized health care for all, subsidized higher education, etc. etc.?

Germany's companies are more concerned with long term success than short term corporate profits, because half of the members of boards of directors are representatives of unions and workers - surely something Rubin would think is socialism. When the economic downturn hit, Germany actually paid companies not to lay off workers.

Yes, I agree, let's follow Germany's "austerity" model, provided we can have their social welfare model as well.

Poster3, your comparison of Germany and the US is misleading. Germany's tax burden of roughly 40% of GDP is indeed higher than the US's tax burden of 28% (at all levels), but our deficit of over 10% of GDP brings the two into rough parity for the total burden of government. The difference is future tax payers, our children and grandchildren, will be buried beneath our debt service, while Germans are at least paying as they spend.

Rubin's comparison is wrong and Poster 3 pointed out some of the reasons. England after introducing strong austerity measures saw a drop in their GNP.
With unemployment at 9% spending cuts our going to have to measured as to how they affect the economy. The last thing I personally want is to enter another recession. Boehner might think of it as a So Be It moment but I don't.

"... the difference is future tax payers, our children and grandchildren, will be buried beneath our debt service, while Germans are at least paying as they spend."

I agree we should pay as we spend -- which is why we need to increase taxes on the rich. Doing so would also help bring us in line with the conservative goal of emulating Germany's economic system: According to the CIA, the GINI index of inequality for Germany was 27 in 2006, but for the U.S. it was 45 in 2007. The U.S. in fact has the highest income inequality of all major democratic industrial powers, and also the highest for us since the robber baron age prior to the Great Depression.

Obviously, tax breaks for the rich have not worked. The public supports increased taxes on the rich, but due to Citizen's United, and both parties' dependence on high income donors for campaigns, it is something barely discussed.

Germany and the US have two very different economies with different dynamics at play. The US had a booming economy throughout the 1980s and 1990s that left Europe in our dust. We’ve had greater immigration and indigenous population growth too while Germany’s thrifty population has been aging. Don’t forget that as a Euro-member, Germany cannot spend like crazy because it is the lender of last result to its fellow members, especially the faltering PIIGS (Portugal, Ireland, Italy, Greece, and Spain).

That said, Germany’s analysis as described above and the results of its and the US response to the current recession support their analysis. Our recovery from this recession has been painfully slow, especially in comparison to the Reagan recovery to the recession early in his first term.

Why are businesses and smart money people in the US holding on to their capital? A nagging voice in their brains tells then that the real tax rate is driven by what governments at all levels are spending, and that means taxes are going to zoom up.

They also know about Hauser’s law: no matter how much the US spends, no matter how high tax rates are set, the most the feds can pull out of the economy is just under 19% of GDP. Set tax rates high, the economy falters and all you get is 18.x%. Set tax rates low, the economy booms, brining in 18.X% of a much larger pie. Hauser's Law is based on sixty years of data and is explained here: http://online.wsj.com/article/SB10001424052748703514904575602943209741952.html?KEYWORDS=hauser

There’s a chart of it in operation over the past sixty years here:
http://www.americanthinker.com/blog/2009/09/graph_of_the_day_for_september_9.html

What’s fun -- perhaps we’ll see some of it here is -- to hear the Left argue that high tax rates are needed, it’s a matter of fairness. Obama himself has said that. Too bad, because it’s the poor that end up getting screwed.

Only in the economically illiterate Obama administration led by no real world experience academic flakes like Romer could they come up with a stimulus inducing 1.6% multiplier.

So if you are assured an ROI like that, then all governments would throw every available tax dollar into stimulus. These people are in lalaland. It leads one to conclude that common sense ain't so common anymore. Finally, good riddance to Romer and Krugman is a fool.

The Tea Party reminds voters of Sarah Palin. Palin lost John McCain the Presidency in 2008. The combination remains to be a lethal cocktail few Republicans will venture to drink. Sarah Palin's tea isn't a stimulate like coffee, but a reminder to those seeking office in 2011. Walk away from Tea Party politics or walk away from the White House, Republicans have to decide if winning means joining forces with the Tea Party or all the parties representing politics across America. Unfortunately, Sarah Palin does not represent Alaska. Rick Perry does not represent Texas. The Tea Party does not represent all of America. Go out to Searchlight, Nevada, where the Tea Party met to protest Harry Reid, and you will see what I saw two months ago on a trip to see Harry Reid's birthplace. Why the Tea Party Express broke ground in Searchlight is still a mystery to voters?

Keynesianism- the economic theory that throwing good money after bad is wise economic policy if only done on a large enough scale.

The Tea Partiers are the only fiscally responsible and sane movement in the country. They are just waiting for everyone else to get up to speed. It is happening slowly as we see in editorials like this and in the moves of states like Wisconsin to acknowledge economic reality.

Either the Tea Partiers succeed in fundamentally reshaping the country into something closer to what it was meant to be and what its Constitution allows or we go the way of Japan (or if Chauncey Gardener has his way, Greece).

Yes the liberals should not have dismissed the Tea Partiers. They had the chance of pulling them away from the Republicans.

Tea Partiers are focused on fiscal responsibility. It takes fiscal responsibility to make the money to fund America's safety nets.

The problem is that Democrats and probably not liberals in general, owe their souls to the same elites the Republicans do.

In other words ... we've been wedged. You call Tea Partiers racist and Tea Partiers, in polite company, call you bleeding heart liberals.

Cutting spending doesn't have to be anti-poor. It just means you don't let the government create temporary jobs that cost $600,000 per job when a small business can create 7 or 8 with the same money. Of course that does mean we stop bailouts to the banks which is where the money is currently going courtesy of Ben Bernanke and Washington.

Now, if only the Germans, rational folks that they are, would do for Anthropogenic Global Warming and the Green Mania what they have done for Keynesianism.

Oh wait, maybe they're starting to; I believe they have quit subsidizing their heretofore significant "investments" in windpower (which has something like a 0% ROR). Perhaps they will lecture Obama on this too.

engdre is correct that despite Clinton’s budgetary proclivities, the GOP House was able to engineer the balanced budget that Dems are rightly proud of. When the GOP took the House in 1995, a guy by the name of John Kasich became Chairman of the House Budget Committee. He led the charge for balancing the federal budget and is known as the chief architect of the Balanced Budget Act of 1997. Kasich rightly claims credit for the only U.S. Budget Surplus since 1969. Kasich did not run for reelection in 2000 and hasn’t been heard of since.

Wait a minute, he was just elected governor of Ohio! Rumor has it that the Obami, unions, OFA, and DNC are going after him next. Two bad choices in a row, no? Yes!

BTW, at the time (early to mid-1990s) the dirty little secret that Kasich and others touted and shouted was that the revenue / expenditure balance was so close that merely slowing down expenditures for a year or so would bring the budget into balance, and they were right. Watch out for conservative Midwesterners like Walker, Kasich, Ryan, and the like, because they might find a less painful way out of the mess we’re in.

Poster 3 said: "It is highly ironic that conservatives like Rubin, David Brooks, Chris Caldwell, etc. use Germany as their example of economic success. The tax burden of the U.S. is somewhere around 25% of GDP. The tax burden of Germany is 40% of GDP."

Conservatives don't use Germany as an example of economic success. They use it as an example of choosing a rational policy in a time of serious trouble. German policymakers understand what the likes of Obama and Romer evidently don't understand: The "multiplier" does not justify government "stimulus" spending, but rather the contrary.

Or as Reagan said, "Government is not the solution to our problem. Government IS the problem."

I'm a "tea party"-supporting person, even though I lean liberal in many areas (atheist, gay rights support, environmentalist, drug legalization, animal rights). However, I am also big on financial and personal responsibility, and the never-ending liberal "tea bagger" taunts really pushed me into the GOP camp, as they currently seem to be the best of two bad choices.

For all of you who think that spending is the way out, why don't you try it at home with your own budget and get back to us on how it works. I believe that debt is like crack cocaine to sound fiscal budgeting, and our country is experiencing withdrawal symptoms that are indeed painful, but we have to power through it to come clean.

Poster 3 praises Germany's economic model compared to that of the U.S., and several posters have made good replies. Here is another point.

Most people don't seem to realize it, but on a per capita basis the U.S. does about 30% better than the european socialist democracies. Germany is no exception: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita This is so despite europe's generally well educated and homogeneous populations.

What is the difference? Less socialism, more economic freedom is the obvious answer. People work harder and more creatively when they get to keep more of their earnings.

Under socialism, why should you work when you can lay in your hammock and let someone else support you? If we choose the european model, we can confidently expect our economy to contract by at least 30%.

According to the geniuses in government the multiplier is 1.6 Those doing the actual checking found it is .6 Let me see 1/1.6 = .6 (roughly). Those government guys can't even do simple math right. Somebody buy Obama a calculator. And teach him how to use it. Maybe a Wisconsin teacher could do the job. They seem to have a lot of time on their hands. Unfortunately they don't seem to be good with addition and subtraction. Ah. Well. He could always hire a tutor from the private sector.

When we started building the Interstate Highway system the maximum personal income tax rate was 87%. When we landed on the Moon it was 77%. Today it's 35%.
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html#_edn5

The US is going broke on the backs of the middle class. It is time for the rich to once again pay their fair share and help us rebuild.

My dad told me about "Wise Health Insurance" or something which helped him to find a lower priced health insurance (with ALMOST similar benefits) he is recommending this to me. Any suggestion? What do you think of them?

Well, we have a laboratory that says austerity does not work...the UK. The initial cuts have caused their economy to contract, just like the financial crisis. Anymore, they'll be in recession again. Is that what you idiots are after?? Another recession so you can win in 2012?? The Tparty is that selfish and so are you.

I am truely tired of the entire right leaning comments that there is no way to help the economy grow other then cutting spending. Yes, some cuts are necessary and proper. However, the reality is that the country cannot continue to ignore the issue of raising revenues. The American public, including Republicons and Tea Partiers, lived the good life for the last 30 years based on government spending more and more. Everyone loved it until the repeal of oversight lead to Wall Street and banks making stupid business decisions that ended up as the worst economic disaster since the depression. Now, after years of borrow and spend, the Republicons and the Tea Partiers want to solve everything by cutting spending. But only for the poor and middle class. It is time to realize that instituting the Medicare Prescription Drug plan, initiating two wars, expanding military spending and removing all oversight of financial markets is the problem. Borrowing to pay for these things is the biggest problem. The American public needs to be finally told that it is time to pay up. To do that the government needs to increase taxes. The Tea Party and Republicons have been good at instilling the belief that spending more then comes in is bad. I do not believe anyone would disagree with that proposition. However, they are the ones that did most of the over spending. Plus it is obvious that the Tea Party only wants to focus on one area, the poor/middle class that is struggling. Do they discuss all of the corporate welfare that the government bestows? No, that would go against their owners, corporations, wealthy, banks, Wall Street. They cannot take anything away from those folks because they would lose their funding. So I believe the public will continue buying into the rhetoric for the time being. Let's see the results. I for one do not believe that paying taxes is against the Constitution, against freedom or against religion. It is just part of the process, if you want services you have to pay. It has always been that way until the Republicons came around.

danw1 wroteL "Bill Clinton turned a huge deficit into a surplus. Not one Republican voted for his plan."

I had to laugh. Clinton vetoed two GOP budgets before finally signing one that cut spending and led to a budget that was temporarily balanced because of the Dot Com bubble and resulting revenues. But when Clinton enjoyed a Democratic congress, his policies were just as misguided as Obama's.

Does anyone remember the various Clintonian permutations? "We could balance the budget in 7 years/10 years/6 years/8 years/5 years etc" In hindsight Clinton may seem to have been a decent president, but at the time he was as clueless as Obama.

Good grief, are we still arguing about whether or not Keynes knew what we was talking about? He did. If you don't get it, you just haven't done your homework.

Keynesian economics works within a producing economy. The multiplier effects that are in dispute operate based on repeated transactions within the same economy, with each transaction accruing economic benefit. For this process to work, the funds involved must be transacted repeatedly within the same economy. As soon as you transfer assets over borders, the multiplier effect transfers from the importer to the exporter. There's nothing more complicated about it than that. Multiplier effects do exist, but our status as a massive net importer transfers the benefits out of our economy, and into the economies of our trading partners.

Running an economy that doesn't actually produce anything is a losing proposition. The economics of trade are far riskier than domestic economics, and there is no sense in giving foreign trade precedence over the development of the domestic economy. The only way to win at the global trade game is to be a net exporter, and being a net importer is a certain way to lose.

For these reasons, we need to de-emphasize trade, and rebuild our economy from within.

Having learned Keynesian economics in business school, and being previously unaware of any serious economists who question the multiplier theory, this article gave me pause . . . that is until its dishonest final paragraph gave away its anti-Obama agenda.

Over and over, I have heard this drivel about Obama having promised that unemployment would not exceed 8 percent . . . from everybody but Obama. My best guess is that just before unemployment climbed past 8 percent, someone in the administration (perhaps Obama) made ONE ill considered comment using this prospect as an argument in favor of the stimulus, and the Republicans seized upon it as a can't-miss indication of the stimulus' failure.

The economy was hemorrhaging more a half million jobs every month and unemployment was already at 7.8 percent when Obama first took office. It is as if the economy were a car hurtling toward a cliff, and the 8 percenters (whose economic policies started us off the cliff) are arguing that once the new driver took over, promising to avert the disaster, the car was supposed to stop on a dime.

The effect of the stimulus should be measured in relation to the cliff (unemployment of 10 percent or more - after all, unemployment reached current levels under Reagan), not in relation to the point at which the brakes got applied.

Having learned Keynesian economics in business school, and being previously unaware of any serious economists who question the multiplier theory, this article gave me pause . . . that is until its dishonest final paragraph gave away the author's anti-Obama agenda.

Over and over, I have heard this drivel about Obama having promised that unemployment would not exceed 8 percent . . . from everybody except Obama. My best guess is that just before unemployment climbed past that figure, someone in the administration (maybe even Obama) made ONE ill considered comment using this prospect as an argument in favor of the stimulus, and the Republicans seized upon it as a can't-miss indication of the stimulus' failure.

The economy was hemorrhaging more a half million jobs every month and unemployment was already at 7.8 percent when Obama first took office. It is as if the economy were a car hurtling toward a cliff, and the 8 percenters (whose economic policies started us off the cliff in the first place) are arguing that once the new driver took over, promising to avert the disaster, the car was supposed to stop on a dime.

The effect of the stimulus should be measured in relation to the cliff (unemployment of 10 percent or more - after all, unemployment reached current levels under Reagan), not in relation to the point at which the brakes first got applied.

Having learned Keynesian economics in business school, and being previously unaware of any serious economists who question the multiplier theory, this article gave me pause . . . that is until its dishonest final paragraph gave away the author's anti-Obama agenda.

Over and over, I have heard this drivel about Obama having promised that unemployment would not exceed 8 percent . . . from everybody except Obama. My best guess is that just before unemployment climbed past that figure, someone in the administration (maybe even Obama) made ONE ill considered comment using this prospect as an argument in favor of the stimulus, and the Republicans seized upon it as a can't-miss indication of the stimulus' failure.

The economy was hemorrhaging more a half million jobs every month and unemployment was already at 7.8 percent when Obama first took office. It is as if the economy were a car hurtling toward a cliff, and the 8 percenters (whose economic policies started us off the cliff in the first place) are arguing that once the new driver took over, promising to avert the disaster, the car was supposed to stop on a dime.

The effect of the stimulus should be measured in relation to the cliff (unemployment of 10 percent or more - after all, unemployment reached current levels under Reagan), not in relation to the point at which the brakes first got applied.

Everything is topsy-turvy in Wonderland, site of the original Tea Party. Painting white roses red is consistent. Many have listened to the Tea Party - as a form of entertainment, a study in the illogical, a running source of anti-history, and as an example of the fact that many are undereducated and delirious with fanciful propaganda.

Poster 3 takes it. Rubin uses Germany to assert the U.S. was wrong about economic policy. Poster 3 points out that Germany is a very different place with an extraordinary amount of normal government spending that far outstrips the U.S. The only way around Poster 3's point is to say that the U.S. is actually better off (which several people have tried), but that defeats Rubin's point (because then Germany does not have a better economic policy). In the alternative, we should follow Germany's fiscal example--socialism and all; maybe that is what Rubin supporters have in mind . . .

This is the second Rubin commentary that I have read; this is the second time I have seen her whole argument tied in knots and rendered silly by a singular, simple point from one poster. It's time for the WaPo to move on; there are more intelligent conservatives out there.

In time of war everyone should be asked to sacrifice. How come it is only the poor and middle class that are being fed to the sacrificial gods? Stop telling us what is wrong, how we got here, and what is needed if everyone doesn't have to participate in the austerity program.

Yes the left should have embraced these ignorant redneck racists and all they stand for long ago!

After all - isn't Obama a racist himself since he hates white people?

There is still time for the democrats to make room in their "big tent" for ALL the birthers, the gun nuts, the 9/11 conspiracy fairies, white-suprimists, and the Gold-Standard nutjobs are just what the Democrats need now.

Does this lady read? The German economy is actually going lower after they made those austerity adjustments.

You are right that unsustainable debt is bad, but where was this argument when Bush was spending like a teenage girl with her first credit card and Cheney said, "deficits don't matter."

This is just another excellent example of the corporate machine changing the dialogue of the nation -- they do it well. It's also telling that all the 'cuts' that are mentioned seem to be in 'entitlements' (ie. things that benefit the average citizen) while no one is mentioning meaningful cuts to all the corporate welfare, tax breaks, and the huge military budget which is consuming over 1/3 of our total budget.

How many readers are sick of ignorant, poorly informed, bad-writing Washington Post public opinion 'journalists'?

I don't care what this writer's political orientation is, but I am concerned that so many writers at the Post seem to have never graduated from a basic high school journalism class. The writing is really hideous and not up to the once high standard of this paper.

Guess budget cuts are happening everywhere, and the Post can perhaps be excused for firing their real journalists and replacing them with the interns.

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